Currency Note

Markets look to central bank meetings this week

By Christopher Nye September 20th, 2021

Both the Bank of England and the Federal Reserve are due to hold their monetary policy meetings this week and all attention will be on comments from officials on both sides of the pond. Whilst no major announcements are expected, any rhetoric regarding interest rates and the economy could impact currencies.

This week will finish with the German election, which is due to take place on Sunday. There are strong expectations of no clear winner, resulting in a coalition. The government could, therefore, take months to form, during which time Chancellor Merkel may adopt a ‘caretaker’ role.

A series of PMI data will also be released this week for the UK, Eurozone and US, giving an indication of how each economy has performed in September.

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GBP: Volatility ahead due to BoE meeting?

The pound is still trading around key levels against the euro and the dollar this morning ahead of the Bank of England’s latest monetary policy meeting, which is due to take place on Thursday.

Although sterling was stronger last week, disappointing retail sales figures on Friday, which showed a second consecutive decline in sales for August, caused the pound to weaken. All eyes will be on flash PMI figures on Thursday morning ahead of the Bank of England’s meeting in the afternoon.

The Bank of England’s recent ‘hawkish’ stance suggests that it could hike interest rates ahead of other central banks. The markets will be listening out for any comments surrounding this on Thursday.

GBP/USD chart over past year

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EUR: German election on Sunday

The euro is slightly weaker against the dollar this morning. This week, the pair could be impacted by the central bank meetings, economic data and any news during the lead up to the German election, which is due to take place this Sunday, September 26.

It’s expected that they will be no clear winner in the upcoming election and a coalition could take months to form, with Chancellor Angela Merkel adopting a ‘caretaker’ role during this period.

The European Central Bank will hold its non-monetary policy meeting on Wednesday. This will be followed by consumer confidence figures and flash PMI data on Thursday.

USD: Fed meeting this week

The dollar is strong against a basket of currencies this morning, benefitting from its safe haven status due to shares plummeting in Chinese property company Evergrande.

However, the main event for the greenback this week will be the Federal Reserve’s monetary policy meeting, which will conclude on Wednesday. The Fed is expected to stick to its plans for tapering this year and isn’t expected to reveal any further details or a timeline.

Any surprises from the meeting could impact the dollar. Strong consumer sentiment and retail figures for August could be alluded to by officials.

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